Key points:

Almost all attending decision-makers believe that the upward risks to the inflation outlook have increased, partly due to the potential impacts of changes in trade and immigration policies.

Participants noted that recent inflation data exceeding expectations and the potential impacts of changes in trade and immigration policies suggest that the decline in inflation could last longer than previously anticipated, with many believing that the decline in inflation may temporarily stagnate or carry such risks.

Participants believe that the Federal Reserve has reached or is close to a suitable point to slow down the easing; many believe cautious decisions are necessary in the coming quarters.

Most decision-makers support a 25 basis point rate cut in December, stating that it is a well-considered decision, but some believe that not cutting rates would be beneficial.

The "New Federal Reserve News Agency": The minutes suggest that Fed officials will temporarily keep interest rates unchanged, partly due to Trump's intention to impose tariffs, and they anticipate the risk of inflation being higher than expected.

Not a word mentioned about Trump, yet he is implied in between the lines, which might leave the deepest impression from the recent Federal Reserve meeting minutes.

In the monetary policy meeting minutes released by the Federal Reserve on January 7, Eastern Time, 2024, officials expressed concerns about inflation being higher than expected and the potential inflation impact from policies after Trump took office, suggesting they would slow down the rate cuts due to future uncertainties.

Regarding this meeting minutes, senior Federal Reserve reporter Nick Timiraos, known as the 'New Federal Reserve News Agency,' candidly stated that the Fed would not be cutting rates further for the time being. In other words, the minutes imply a pause in action. Timiraos directly titled his article: 'The Fed minutes indicate that officials are prepared to keep rates steady for now.'

The article pointed out at the beginning that the minutes showed the Federal Reserve officials made a 'carefully weighed' decision to cut rates in December, when they expected risks of inflation being higher than anticipated, partly due to Trump's potential tariffs.

The article states that based on the minutes, when considering the future rate cuts, Fed officials were confused by two situations: First, whether the slight strengthening of inflation data last fall meant there could be more potential upward price pressures; second, whether Trump's promise of tariffs would complicate the inflation outlook.

Declines in inflation may last longer than expected; many warn that this decline may pause.

Wall Street Insight noted that there was not a single mention of the name of President-elect Trump in this meeting minutes, but eight mentions clearly referred to future U.S. government policies on trade and others, especially highlighting Trump's influence. Among these eight instances, four were discussions by Fed decision-making officials on America's inflation and economic outlook, while the other four were evaluations by Fed staff.

In discussing the inflation outlook, the minutes stated that the attending officials expected inflation rates to continue falling towards the Fed’s target of 2%.

'But they noted that recent inflation data exceeded expectations, and the potential impacts of trade and immigration policy changes indicated that this (decline in inflation) process might take longer than previously anticipated. Several believe that the decline in inflation may have temporarily stalled or pointed to the risk of such a possibility.'

Following the previous two statements, the minutes noted that a couple of attendees believed that the positive sentiment in financial markets and the momentum of economic activity may continue to create upward inflationary pressures, and then mentioned trade policy:

"All attendees agreed that the range, timing, and impact on the economy of policies affecting foreign trade and immigration have become increasingly uncertain."

In assessing the risks and uncertainties related to the economic outlook, the minutes noted:

"Almost all attendees believed that the upward risks to the inflation outlook have increased. Attendees mentioned that the reasons for making this determination are that recent inflation data were stronger than expected, and the potential changes in trade and immigration policies may have an impact. Other reasons include geopolitical changes potentially causing disruptions in global supply chains, a looser-than-expected financial environment, stronger-than-expected household spending, and rising housing prices being more persistent."

A few attendees pointed out that it may be difficult to distinguish between the more lasting effects on inflation and the potentially temporary effects in the coming period, such as the impacts of trade policy changes potentially leading to variations in price levels.

When Fed staff mentioned trade policy, it was done three times in the economic outlook, namely: Given the uncertainty surrounding potential changes in trade, immigration, fiscal, and regulatory policies and their possible economic impacts, staff emphasized the difficulty in selecting and assessing the significance of these factors to their baseline expectations; because assuming that the impacts of trade policy support inflation, staff expect inflation to roughly level off to 2024 levels by 2025; the staff's inflation expectations carry upside risks, partly due to the potential impacts of changes in trade policy being larger than assumed by the staff.

Another time, staff mentioned that the pricing in overseas financial markets reflects impacts including potential changes in USA trade policy.

The Fed has reached or is nearing a suitable point to slow down easing, and decisions in the coming quarters need to be cautious.

In December, the monetary policy committee of the Federal Reserve announced after the FOMC meeting.The resolution statement.The Fed hinted that it would slow down the pace of interest rate cuts in the future. The minutes of this meeting directly mentioned the intention to slow down interest rate reductions.

In discussing the outlook for monetary policy, the minutes stated: "Participants indicated that the (FOMC) committee has reached or is near a point at which it would be appropriate to slow the pace of policy easing." They also hinted that if the data aligns with expectations, inflation continues to stabilize towards 2%, and the economy remains close to full employment, it would be appropriate to gradually shift towards a more neutral monetary stance over time.

Some participants pointed out that including the December decision, the three meetings from September to December 2024 collectively cut rates by 100 basis points, and the Fed's policy rate is now significantly close to neutral levels compared to when the rate cuts began in September. "Additionally, many participants indicated that various factors highlight the need for cautious monetary policy decision-making in the coming quarters."

In the December meeting statement, the Fed announced, as in the previous meeting, to cut rates by another 25 basis points, in line with market expectations. Unexpectedly, one voting member opposed it, advocating for keeping the rate unchanged, which revealed cracks in the Fed's internal unified front.

Most decision-makers stated that the December rate cut was carefully considered; some believed that not cutting rates would be beneficial.

The minutes from this meeting also showcased the internal divisions within the Fed. The minutes noted that in discussing December's monetary policy decisions, the vast majority of participants believed it was appropriate to cut rates by 25 basis points. They argued that further rate cuts would help maintain the strong momentum of the economy and labor market while continuing to push inflation further down.

Most participants pointed out that their determination of the appropriate policy action (rate cut) for this meeting was carefully weighed.

However, immediately after, the minutes mentioned opposing voices against the rate cut.

Some participants indicated that there are benefits to maintaining the federal funds rate target range unchanged. These participants noted that the risk of persistent high inflation has increased in recent months, and several emphasized that monetary policy needs to help create a financial environment consistent with a sustainable decline in inflation to 2%.

Editor/Somer